June 12, 2020

ETF and Fund Investors Put Risk Back into Their Portfolios

by Tom Roseen.

Shrugging off the ongoing Sino/American discord, the official end to the longest economic expansion in U.S. history, and continued concerns over the global COVID-19 pandemic, investors were net purchasers of mutual fund and ETF assets for the Lipper fund-flows week ended June 10, 2020. They injected a net $3.5 billion for the most current week after learning the U.S. economy added a record 2.5 million jobs in May and global central banks announced new stimulus initiatives to combat the coronavirus downturn.

Investors were net redeemers of money market funds for the fourth consecutive week, withdrawing a net $30.8 billion this week. This contrasts with the weekly flows trends witnessed from early March through the beginning of May, when money market funds ruled the roost and collectively attracted a record $1.1 trillion over that period.

Since the March 23, 2020, COVID-related market low, the Dow Jones Industrial Average has rallied 45.17% through the fund-flows week ended June 10 and year to date is down just 5.43%, while the NASDAQ rose 46.05% since the market trough and is up 11.68% year to date. Investor sentiment has improved over the last several weeks, aided by efforts to reopen the global economy and aggressive stimulus packages instituted by central banks and domestic and foreign governments.

Since the market peak on February 12, 2020, investors have withdrawn a net $116 billion from equity funds and ETFs through May 31, 2020. However, they were net purchasers of equity funds for the first week in seven, injecting $20.4 billion for the most recent fund-flows week. This marked the group’s largest weekly net inflows since March 14, 2018. As has been the trend, though, the lion’s share of net new money into equity funds were witnessed by ETFs. Year to date, conventional equity mutual funds have suffered net redemptions of $154.3 billion, while their ETF counterparts have taken in $69.9 billion. And this last fund-flows week was no exception, with conventional equity mutual funds witnessing $1.8 billion of net redemptions, while equity ETFs attracted some $22.2 billion.

Rapid intervention by the U.S. Federal Reserve Board to ensure liquidity in the debt markets went a long way to shore up both investor confidence and debt-related returns. Since March 4, when we witnessed a seven-week run of outflows that culminated in $150.6 billion of net redemptions, the tide has changed significantly for fixed income funds and ETFs. For the ninth consecutive week fund investors were net purchasers of fixed income funds and ETFs, injecting a net $116.9 billion (including both weekly and monthly reporting funds) since the beginning of April.

Bucking the trend, however, conventional fund investors were the primary purchasers of fixed income securities, injecting a net $9.3 billion for the most recent fund-flows week, while their ETF counterparts injected a net $1.8 billion. Year to date, conventional bond fund investors have withdrawn a net $139.6 billion, while ETF bond investors have injected a net $69.2 billion.

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